Are investors having second thoughts over Punxatawney Phil?
The groundhog of Gobbler’s Knob, famous for forecasting the timetable for the US spring, on Tuesday said, apparently in “groundhogese”, that he could not see his own shadow, meaning that winter was over.
It was a rare announcement – only the 18th time on records going back to the 1880s that the rodent has seen an early end to spring.
And it was one that, on the day, seemed to catch the mood on ag markets, where a rise in prices in the last session was attributed at least in part to investors injecting a bit of extra risk premium on account of the prospect of the northern hemisphere spring sowing season.
“The spring seasonal seemed to take over in the grains and soybeans, with funds starting to reduce shorts ahead of weather dominated US spring planting and summer growing season,” said Kim Rugel at Minneapolis-based broker Archer Daniels Midland.
However, on Wednesday, grain markets lost some of their vim, with March soybean futures, having in the last session set their highest close in six weeks, falling by 0.2% to $8.84 ¾ a bushel, as of 10:20 UK time (04:20 Chicago time).
While March corn was flat at $3.72 ½ a bushel, later contracts traded lower.
Certainly, the mood on external markets, which are having a big effect on ags, was mixed.
Shares were lower, with Tokyo stocks closing down 3.1% and Shanghai shares down 0.4%, while London stocks traded 0.5% lower in early deals.
While Brent crude was higher, trading up 1.4% to $33.17 a barrel, it still remains down more than 10% so far in 2016.
“Insofar as oil is an expression of global demand realities – global growth slowing, etc – the risk-off flavour that continues to permeate financial markets is understandable,” said Tom Porcelli, chief US economist at RBC Capital Markets.
And, on the demand side, there is a calendar matter to consider long before northern hemisphere farmers start their spring plantings, with China’s lunar new year holiday starting at the close of this week.
This will sideline temporarily the world’s top buyer of many commodities, including rubber, sugar and soybeans (but no longercotton, if the International Cotton Advisory Committee is to be believed).
For soybeans it is also seen as likely marking the watershed where Brazilian soybean exports take seasonal pre-eminence from US ones, which will take back the baton in six months or so.
And, indeed, Brazilian soybean export prospects are being enhanced by some acceleration in the harvest, after a slow, rained-delayed start, with farmers in Mato Grosso, the top soy-producing state, playing catch-up a bit last week, according to ag research institute Imea.
Furthermore, latest yield results appear to be better too, prompting Michael Cordonnier, the respected analyst, to lift by 1.0m tonnes to 98.0m tonnes his estimate for the Brazilian crop.
‘Soil moisture deficits’
More doubt now in fact surrounds the Argentine crop, which has been dogged by dry weather.
“For the first time this growing season, the weather in Argentina is catching the attention of the market,” Dr Cordonnier said.
“The month of January has been drier than normal across most of the country and it has led to the development of soil moisture deficits.”
However, he added that with Argentine soils having a “very good water holding capacity”, meaning that it “takes a while for serious moisture deficits to develop”, dryness will need to persist for another week or two “before the situation became critical”.
And rains are expected within that timescale.
“Forecasters expect that recent dryness in Argentina will be alleviated by widespread rain next week,” said Tobin Gorey at Commonwealth Bank of Australia.
Benson Quinn’s Kim Rugel said: “Forecasts continue to verify rains for the region in the six-to-10 day outlook.”
Corn, however, did have some extra support from the continued worries over southern African dryness, which has provoked ideas of large regional imports of the grain, in white (food) and yellow (feed) forms.
“South Africa is already importing significant amounts of corn to compensate for its drought-induced domestic production shortfalls,” Mr Gorey said.
Johannesburg white maize for July gained 1.7% to 4,949 rand a tonne, with its yellow maize peer up 0.9% at 3,615 rand a tonne.
“Weather remains a key driving factor of the domestic grain and oilseed prices,” industry group Grain SA said.
“The past weekend was fairly dry across the country and the next eight-days are expected to remain dry, with possibilities of light showers in the eastern parts of the country.”
Wheat futures gain
Still, it was wheat futures which fared best of Chicago’s big three in early deals, adding 0.3% to $4.76 ½ a bushel for March delivery, knock on the door of a return above their 40-day moving average.
That said, the grain did underperform in the last session, after Egypt cancelled its latest tender, after being snubbed by merchants over a zero tolerance policy on ergot.
“As anyone familiar with wheat can tell you, guaranteeing 0.00% ergot in any wheat sample is almost impossible,” said Tregg Cronin at Halo Commodity Company.
‘Have to be closely monitored’
Returning to the theme of winter, Agritel cautioned about getting too carried away yet at the apparently trouble-free period for most northern hemisphere winter wheat seedlings.
Sure, February has “started with very mild temperatures in the Black Sea area”, of +10 degrees Celsius in Russia’s Central district, and +15 degrees in the South.
However, while “such conditions are not threatening crops within the next 10 days, the weather will have to be closely monitored in the area.
“Most of the time, it is during late winter that killing frost provokes damages,” when a freeze follows a thaw, hitting crop that has lost its snow blanket and perhaps some of its winter hardiness too.
(Source – http://www.agrimoney.com/marketreport/am-markets-punxatawney-phil-boost-to-grains-loses-traction–3485.html)